Commercial Lending question....

[Russell Peden]

Hey All,

I'm looking at a deal on a 6-unit building. When I contacted the agent about putting an offer on it, he said "...sure, just provide me proof of funds or a Pre-Qualification from a Commercial lender"

I had planned on using the lender I currently use for my other income properties. But they informed me they could only qualify for me for up to 4-units.

So this is my first experience trying to secure commercial funding for deal.

Is there anything I need to be aware of, or looking out for? 

How much different is it than residential lending?

I always thought that commercial lenders were primarily concerned with the property financials, as opposed to your personal financials ( ie; Fico, Debt ratio, etc). Is that correct?

Thanks in advance for your input, suggestions, and experiences.

~Russell

[Darryl Dahlen]

Pre-qualification lenders are not the norm on the commercial side. Since a commercial loan is primarily based on the property and it's financials a lender can't pre-qualify you for a loan. They need to see the rent roll, profit and loss, and historical financials to determine their interest. Yes, they'll look at your financials too, but that's to ensure your global cash flow/DTI is safe so that your personal guarantee mean something.

On a 6-unit, the loan process isn't all that different than say a 4-unit other than the focus is more on the property. The paperwork is a bit more involved as is the focus on variables such as vacancy rates, expense ratios, etc.

The big difference is really how the crunch the numbers to ensure the DSCR work compared to using DTI on the residential side. Banks vary, a lot sometimes, on how they underwrite a file and the numbers they want to see on their side. Their terms can have a big impact on this as well as a loan based on a 20 year amortization has a big impact on the DSCR compared to a 25/30 year amortization.